Are we in a housing bubble? It’s a question I’m often asked with home prices rising and a brisk housing market continuing here in Atlanta. And more importantly, if we are in a bubble, when is it going to pop? The short answer is ‘no,’ we’re not in a bubble. A while ago wrote a post as to why and recently I ran across a very interesting report on the current health of the housing market published by CoreLogic. The article discusses exactly how ‘risk’ of a bubble is measured in the housing market and using their risk factors, I can again say that ‘no’ we are not likely in a housing bubble here in Atlanta. And in fact, the article says that the majority of markets in the U.S. are healthy and have relatively low risk. But how do they know?

First, the analysts look at home prices and whether the trend of prices is long-term sustainable by the local economy, specifically household incomes. The vast majority of citizens budget a big chunk of their monthly income for housing costs – whether they’re renting or own – so as incomes go up, there’s room for housing appreciation as well. However, risk can increase if this balance between incomes and housing costs gets way out of whack. Fortunately in Atlanta our incomes and job growth are steadily increasing.

Second, risk is determined by the relationship between the appreciation of home prices and costs to rent. If home prices and rents vary too widely, then you’ll know a correction is on the horizon, because a large difference between the two is not sustainable for the long term. Think of it this way, if home prices increase so greatly that more people would prefer to rent then eventually home prices will have to come down to satisfy what the market demands – more affordable homes.

Finally, the CoreLogic analysts look at the number of homes being flipped. If there’s a higher than normal rate of flipping and speculative investment it can falsely inflate housing prices and increase the risk of a bubble. They also look at mortgage fraud numbers and an unusually high number of mortgage fraud can also signal higher risk for a bubble.

So, as far as Atlanta goes, our risk is low now by all of these measures. In fact, I’m seeing our market tapering off from the frenzied summer buying season and as I talk to investors they tell me our economy is in good shape with incomes rising and job growth continuing.

If you have been considering selling your home, keep in mind that Fall is a great time to list it! We know from the past that December is the month with the second highest number of closings as many corporate relocations take place during the 4th quarter of the year. Get in touch with me today to find out what your home is worth and we can talk strategy. I’d love to help you sell your current home and find a new one, right here in Atlanta!